While the first 4 months of 2014 had New Zealand Units (NZUs) languishing in the low $3 dollar range, the last 4 months has seen a couple of rallies.

The first major rally was in mid May where NZUs briefly touched $5/unit before falling back. The reason for the upsurge in prices was in direct response to the unexpected law change blocking Post-1989 forest owners from using Kyoto units when leaving the ETS. This law change had a sudden twofold impact. It stopped the supply of NZUs to market from forest owners selling up and exiting the ETS, and it created panic buying from foresters yet to exit who needed to re-purchase NZUs they had already sold.

The latest rally is most likely a result of the upcoming elections. Mid-August with the revelations around the Dirty Politics scandal, there was a sentiment that Nationals election prospects were weakening. The carbon price has increased over that period from $3.80 to around $4.30.

It is well known that Labour supports a strengthened ETS and higher carbon price, and while the Greens prefer a carbon tax there have been indications lately that would support a much bolder ETS if they had to. The question is what will the carbon price do under a National led government? Some expect prices to increase given that overseas units will be banned completely from New Zealand from May 2015, and that holders of NZUs are unlikely to sell off in large volumes at prices less than $10. However, on the flipside, emitters do not have to surrender their first NZU for another 12 months after that in May 2016, and Government now has given itself the power to print and auction NZUs into the market.